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HDFC plans acquisitions in lending, insurance with new capital of Rs 14,000 crore

HDFC wants to have adequate capital in place to expand lending business once economic growth picks up from downturn sparked by the coronavirus pandemic.

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Mumbai/ Tokyo: Housing Development Finance Corp. is raising $1.8 billion of new capital to help it make acquisitions in areas ranging from lending to insurance, according to Keki Mistry, vice chairman and chief executive officer of India’s biggest mortgage lender.

“If there is a good acquisition opportunity which comes our way we will not want to miss that opportunity just because the capital is not in place at that point in time,” Mistry said Tuesday in an interview with Bloomberg Television.

Last week, HDFC announced plans to raise as much as 140 billion rupees ($1.8 billion) through the sale of shares or bonds. It also wants to have adequate capital in place to expand its lending business once economic growth picks up from the downturn sparked by the coronavirus pandemic.

“Every passing quarter the growth number should be better and better,” Mistry said, adding that he expects demand in the housing market to be back to normal by the end of March 2021.

One tranche of the new capital will be raised through an equity issue to institutional investors, and the other via an instrument that will be convertible to equity, Mistry said.

As well as its core mortgage business, HDFC has subsidiaries in life and non-life insurance, education finance and banking. Mistry said some part of the new capital might be used to infuse money into the HDFC subsidiaries, helping them with potential acquisitions.

HDFC’s capital adequacy ratio stands at 16.6%, higher than the current regulatory minimum of 14% for mortgage lenders. The minimum for such lenders is being stepped up to 15% by March 2022.

Mistry was also optimistic about HDFC’s asset quality, given improved demand for housing. He said the lender hasn’t seen major job losses among its middle income borrowers.

The Reserve Bank of India has allowed borrowers to defer their loan repayments by six months until the end of August without such delays being treated as bad loans.

While that hides the extent of soured debt for now, the lockdown imposed during the pandemic may push India’s total bad loan ratio by 7 percentage points, according to a McKinsey & Co. report. The current ratio of 9.3% is already the highest among major world economies.

However, HDFC might be less impacted given that the volume of loans subject to a deferral has come down since last month, according to a Macquarie Group report.-Bloomberg

Also read: World Bank expects private creditors to join G20 in providing debt relief


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